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Assessing the impact of regulation on bank cost efficiency

Author

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  • Douglas D. Evanoff

Abstract

The author finds that the bank production process was significantly distorted during a period typically associated with heavy industry regulation. As deregulation occurred, banks fully exploited the cost advantages associated with size and reaped significant gains from technological change. Efficiency significantly improved with deregulation.

Suggested Citation

  • Douglas D. Evanoff, 1998. "Assessing the impact of regulation on bank cost efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 21-32.
  • Handle: RePEc:fip:fedhep:y:1998:i:qii:p:21-32:n:v.22no.2
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    References listed on IDEAS

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    3. Sherrill Shaffer & Edmond David, 1986. "Economies of superscale and interstate expansion," Research Paper 8612, Federal Reserve Bank of New York.
    4. Douglas D. Evanoff, 1985. "Financial industry deregulation in the 1980s," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 3-5.
    5. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    6. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
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    8. Hunter, William C & Timme, Stephen G, 1986. "Technical Change, Organizational Form, and the Structure of Bank Production," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 152-166, May.
    9. Jeffrey A. Clark, 1988. "Economies of scale and scope at depository financial institutions: a review of the literature," Economic Review, Federal Reserve Bank of Kansas City, issue Sep, pages 16-33.
    10. George J. Benston, 1965. "Branch Banking And Economies Of Scale," Journal of Finance, American Finance Association, vol. 20(2), pages 312-331, May.
    11. Evanoff, Douglas D & Israilevich, Philip R & Merris, Randall C, 1990. "Relative Price Efficiency, Technical Change, and Scale Economies for Large Commercial Banks," Journal of Regulatory Economics, Springer, vol. 2(3), pages 281-298, September.
    12. Hunter, William C & Timme, Stephen G & Yang, Won Keun, 1990. "An Examination of Cost Subadditivity and Multiproduct Production in Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 504-525, November.
    13. Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
    14. Rangan, Nanda & Grabowski, Richard & Aly, Hassan Y. & Pasurka, Carl, 1988. "The technical efficiency of US banks," Economics Letters, Elsevier, vol. 28(2), pages 169-175.
    15. David H. Pyle, 1974. "The Losses on Savings Deposits from Interest Rate Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 614-622, Autumn.
    16. Douglas D. Evanoff & Philip R. Israilevich, 1990. "Deregulation, cost economies and allocative efficiency of large commercial banks," Working Paper Series, Issues in Financial Regulation 90-19, Federal Reserve Bank of Chicago.
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    Citations

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    Cited by:

    1. Hughes, Joseph P. & Mester, Loretta J. & Moon, Choon-Geol, 2001. "Are scale economies in banking elusive or illusive?: Evidence obtained by incorporating capital structure and risk-taking into models of bank production," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2169-2208, December.
    2. Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000. "Are Scale Economies in Banking Elusive or Illusive?," Departmental Working Papers 200004, Rutgers University, Department of Economics.
    3. Joseph Hughes, 1999. "Incorporating risk into the analysis of production," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(1), pages 1-23, March.
    4. Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000. "Are All Scale Economies in Banking Elusive or Illusive: Evidence Obtained by Incorporating Capital Structure and Risk Taking into Models of Bank Production," Center for Financial Institutions Working Papers 00-33, Wharton School Center for Financial Institutions, University of Pennsylvania.

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